Customer acquisition cost (CAC) is what you spend, on average, to win one new customer. On its own it is just a cost. Compared with what a customer earns you each month, it tells you how quickly your growth pays for itself.
How it works
Add up everything you spent on sales and marketing in a period: advertising, marketing tools, and the salaries and commissions of the people doing sales and marketing. Divide by the number of new customers you won in that same period.
CAC payback is CAC divided by the gross margin each customer brings in per month. It is the number of months before a new customer has repaid what it cost to acquire them.
Use gross margin rather than revenue for payback. Only the margin is available to recover acquisition costs, because the rest goes on serving the customer.
A worked example
Spending $30,000 to win 100 customers gives a CAC of $300. If each customer pays $50 a month at an 80% gross margin, they bring in $40 of margin a month, so it takes 7.5 months to earn back the $300.
Questions people ask
Should salaries be included in CAC?
For a true picture, yes. Leaving out the cost of your sales and marketing team makes CAC look much lower than it really is. Some teams track paid CAC (ad spend only) separately, which is useful as long as it is labelled clearly.
What is a good CAC payback period?
Under 12 months is widely treated as healthy for SaaS businesses selling to small and mid-size customers. Businesses selling larger contracts often accept longer payback.
What about customers who found us on their own?
Including them lowers your blended CAC, which can hide how expensive paid channels are. If you can, calculate CAC per channel as well as overall.